Ok, you have faithfully paid your permanent, whole life policy premiums for twenty years and now, you are facing college tuition bills or unexpected medical bills. Cash is tight now or you may have other alternative plans for your life insurance premium today. What are your options for your whole life policy? There are three options (formally called non-forfeiture options) that you can exercise with your insurance carrier:

1. You can surrender the policy to receive a lump sum payment from the insurance carrier, assuming that there is cash value at this time in the policy. The cash proceeds may be subject to income taxes if the amount of the check you receive is in excess of the total amount of premiums that you paid into the policy. Or you can borrow the remaining cash value from the policy, generally income tax free.
2. You can take a reduced paid up insurance option. If your original face amount was $250,000, the insurance carrier will issue a new whole life policy with a reduced face amount of say $160,000 and no premiums will be due during the insured’s lifetime.
3. The third option is to convert the $250,000 whole life policy to a $250,000 term policy. There will be no premium for this new term policy for say ten years, six month and 25 days. But after ten years, six months and 25 days, there will be no life insurance coverage.

Where can you find these details about your policy? These three non-forfeiture options are explained right in your whole life policy as well as the expected policy values also. Can’t find your policy? No problem, just contact your insurance carrier to request a duplicate policy.

If you have a term life insurance policy, there is no cash value. If you do not make a premium payment, the term life insurance policy will be generally terminated after 30 days (called a grace period) when the premium was due.

Always check with your tax advisor first on any potential taxation issues that may involve the policy options that we discussed here.